BHP (ASX:BHP) share price on watch after record dividend and Woodside merger deal

This mining giant's shares will be watched very closely on Wednesday…

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The BHP Group Ltd (ASX: BHP) share price will be one to watch on Wednesday morning.

This follows the release of the mining giant's full year results after the market close today.

BHP share price on watch after record dividend

  • Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) up 69% to US$37,379 million
  • Underlying attributable profit increased 88% to US$17,077 million
  • Net operating cash flow up 73% to US$27,234 million
  • Underlying earnings per share of 337.7 US cents
  • Record fully franked final dividend of 200 US cents per share, bringing full year dividend to 301 US cents, up 151% year on year.
  • BHP and Woodside Petroleum Limited (ASX: WPL) strike merger deal

What happened in FY 2021 for BHP?

For the 12 months ended 30 June, BHP delivered a strong underlying operational performance, with record volumes achieved at Western Australia Iron Ore (WAIO), Goonyella, and Olympic Dam. This was supported by its Escondida operation, which maintained average concentrator throughput at record levels.

The good news for the BHP share price is that this strong underlying operational performance was complemented by favourable commodity prices, underpinning stellar earnings growth and cash flow generation.

Underlying attributable profit came in 88% higher year on year at US$17.1 billion and net operating cash flow was up 73% to US$27.2 billion. The latter led to record free cash flow of US$19.4 billion and allowed BHP to increase its dividend by 151% to US$3.01 per share. This was ahead of what analysts at both Goldman Sachs and Morgans were forecasting. Once again, this could be good news for the BHP share price tomorrow.

BHP also revealed that its strong financial position has allowed it to approve US$5.7 billion (C$7.5 billion) in capital expenditure for the Jansen Stage 1  potash project in the province of Saskatchewan, Canada.

What did management say?

BHP's Chair, Ken MacKenzie, was happy with the company's performance during the year.

He commented: "BHP's performance over the past year illustrates the strength of our portfolio, balance sheet, people and performance culture. Including the record dividend announced today of US$2.00 per share, we have returned over US$15 billion to shareholders over the past year."

"BHP is in a strong position to manage its future in a time of rapid change. We have a clear strategy and are executing against it. Jansen Stage 1 will give BHP exposure to a commodity with a strong demand outlook and decades of potential growth."

BHP-Woodside sign merger deal

Also potentially giving the BHP share price a lift on Wednesday is news that BHP and Woodside Petroleum have entered into a merger commitment deed to combine their respective oil and gas portfolios via an all-stock merger. This will create a global top 10 independent energy company based on production.

The deal will see BHP's oil and gas business merge with Woodside. After which, Woodside will issue new shares that will be distributed to BHP shareholders. The expanded Woodside would be owned 52% by existing Woodside shareholders and 48% by existing BHP shareholders.

Though, management notes that the transaction remains subject to confirmatory due diligence, negotiation, and the execution of full form transaction documents. There are also a number of conditions precedent, including shareholder, regulatory, and other approvals that need satisfying.

Mr MacKenzie said: "The agreement to pursue a merger of BHP's Petroleum business with Woodside will maximise the value of our oil and gas assets through increased operating scale and synergies, with a more diversified product portfolio to support the energy transition."

"Now is the right time to unify BHP's corporate structure. BHP will be simpler and more efficient, with greater flexibility to shape our portfolio for the future. Our plans announced today will better enable BHP to pursue opportunities in new and existing markets and create value and returns over generations," he added.

BHP share price performance

The BHP share price has been a strong performer in 2021. Since the start of the year, the Big Australian's shares are up 19%. This compares to the ASX 200's gain of 12% over the same period. Shareholders will no doubt be hoping this outperformance continues on Wednesday.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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